Ready to Brexit

Three quarters of Irish SMEs intend to invest in their businesses over the coming year despite concerns over Brexit

Businesses should check their supply chains for Brexit exposure, even if they don’t buy or sell directly to the UK

They could also investigate European markets currently served by UK competitors, and may discover new markets in the process

The UK’s vote to leave the EU affects few countries more than Ireland. With the political consequences come major disruption, but Brexit also offers many opportunities for Irish business.

The spotlight was shone on how complex Brexit will be for Irish firms last month when a number of business leaders called for €1bn in state aid to guard against disturbance if the UK quits the customs union.

But the monumental changes also bring a unique opportunity to build. A raft of corporations have made waves suggesting they will move their European headquarters to Dublin from London – and smaller Irish firms could benefit too.

Indeed, confidence in business is booming. Nearly three out of four SMEs intend to invest in their businesses over the coming year despite concerns over Brexit, according to the Small Firms Association’s (SFA) Summer Business Sentiment Survey conducted in May. That includes spending on brand development, staff training, IT and market diversification.

Sussing out the supply chain

However, understanding and planning for Brexit is key, says Neil McDonnell, CEO of the Irish Small and Medium Enterprises Association. As part of these preparations, he says, proactive firms “are firstly working to fully understand their business supply chain, two steps up into supply, two steps down into customer”. Many firms in Ireland don’t recognise that they have Brexit exposure because they don’t buy or sell to the UK. “However, if they interrogated their suppliers and their suppliers’ suppliers, the answer might be different,” McDonnell says. “The case is similar with customers.”

Linda Barry, acting director of the SFA, agrees: “Exporting sectors such as agri-food were immediately aware that they were implicated in Brexit and thought straight away about it. But all businesses need to think of their supply chains in totality as they may be part of an export process even if not directly exporting themselves.

“So now the most proactive across all sectors are the ones thinking beyond the immediate export impacts and thinking through business more thoroughly. They’re thinking about their own supply chain as there might be British companies in it and so are projecting forward the supply chains they are part of.”

Black Castle Drinks, a premium soft-drink producer based in Wicklow, is one such company that has evaluated the supply chain. “‘Brexit-proofing’ our business, we have started looking into sourcing some of the ingredients for our craft sodas that aren’t available in Ireland from mainland Europe rather than the UK,” says founder John McGee. “This will put us in a position to side-step any future customs and tariffs brought about by Brexit.”

Taking a holistic approach

This is one part of understanding the business in its entirety. “It’s best practice that you review the business,” says Barry, “looking at data storage, contracts, business finance and funding, a company’s own employees and customers, and looking in a holistic way at how Brexit might affect you. It is quite specific to each company, but all should do a kind of audit on their businesses around how they may be affected.”

To help businesses prepare, McDonnell says, many proactive firms are using the Enterprise Ireland SME Scorecard, a free planning tool for Irish exporters to the UK to help assess business readiness across six areas: business strategy, operations, sales and marketing, finance, innovation, and people and management.

“The void that British SMEs leave in the European market will be far bigger than the market space closed off for Irish SMEs trading with the UK”

Professor Andrew Burke, Dean, Trinity Business School

Of those areas for the hospitality industry, marketing remains vital. Tim Fenn, chief executive of the Irish Hotels Federation (IHF), says that many firms are preparing by increasing marketing resources, while “the sector remains focused on competitiveness and delivering value for money, and this is a central message we are working with our tourism partners to communicate with holidaymakers”.

And if not already, Barry says, businesses should be developing hedging strategies against a more volatile, permanently weaker sterling, and learning about what level of tariffs their industry could face in the future.

Global markets

As an open economy, there is the potential to attract investment currently in the UK. There is also a wider opportunity: “We’re strong at exporting to many countries – the US for example, but other countries in the EU too,” says Barry. “Companies will diversify and look at new markets that will still be within the EU and have advantages in terms of the single market. There may also be a window for new services businesses to spring up to assist others with customs, logistics, diversification and innovation.”

McDonnell agrees, saying firms are using Brexit to deepen their footprint into the UK, or diversify more into the Eurozone away from the UK. “We advise members to explore both,” he says.

Indeed, Professor Andrew Burke, dean of Trinity Business School, adds: “A lot of businesses here are looking at this as a potential opportunity rather than a threat. There are roughly 11 times the number of SMEs in the UK compared to Ireland and these firms are trading into a European market that is five times larger than the UK economy. So if the UK exits Europe, the void that British SMEs leave in the European market will be far bigger than the market space closed off for Irish SMEs trading with the UK.

“In short, Brexit will create more opportunities for Irish SMEs in Europe than it will eliminate in the UK. So what Irish SMEs are doing is taking a look at the market share of the British companies in other European countries and saying, ‘OK, if we can’t trade into the UK, then let’s target the markets that British SMEs will have difficulty retaining in Europe post-Brexit.’”

Some of the most proactive companies, Burke says, have been looking at where their British competitors in the UK are active in Europe and starting to target those markets already. More than that, many are also looking at the US because they see some British competitors trading in the US and hadn’t realised that was the case prior to researching Brexit.

Black Castle Drinks is testament to this strategy: “We’re also taking on board a lot of the advice from Bord Bia, who are doing great work in highlighting export opportunities in the remaining EU countries as opposed to the traditional Irish export market of the UK.”

McGee thinks the future will be positive if the company remains agile, which Burke agrees with: “Ireland in particular is such a small market that any business here, any ambitious SME, has to think globally from day one. They can trial a product here but have to think internationally to be truly successful.

“So the most proactive and successful businesses will be reviewing the international field as a matter of course anyway, acting in an agile way and seeing where opportunities lie.”